Major construction projects invariably involve issuing bonds or registering legal construction hypothecs (liens) to guarantee the rights of contractors, sub-contractors, suppliers, architects and engineers. The scope and application of these bonds and hypothecs is often misunderstood.
Three kinds of construction bonds are commonly found in major projects:
- a bid bond, to ensure that a bidder will fulfil his obligations when participating in a formal tender;
- a performance bond, to ensure that a contractor fulfils his performance obligations;
- a labour and materials payment bond, to ensure that subcontractors and suppliers are paid and reduce the risk that they will register construction hypothecs (liens) against the property that is being improved. In the public domain, most projects are unlienable: a payment bond is the primary mechanism for reassuring construction trades that they will be paid.
We have several decades of experience in construction bonding and have advised many bond insurers and defended real estate developers’ and contractors’ interests in court, mediation and arbitration.
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